Staff Post: Credit Cards and College Students—What Are the Plusses and Minuses?

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Category: College Corner, Parenting

This post was written by Ryan, one of our fantastic tutors. 

During this time of year, when seniors are hearing from colleges and making decisions about what school they will attend next fall, parents start thinking about what their children need to best succeed on their own. Oftentimes, that involves a credit card of some sort, and whether or not students should have cards in their own names can be a complex decision. On the one hand, credit cards can teach financial literacy and budget-management, yet on the other hand, there is an inherent risk of overspending and creating a poor credit rating. To help facilitate the conversation and decision regarding your children, we’ve compiled a few points to to consider.

Established good credit can make getting jobs and housing easier. Many employers, renters, and utility companies look at credit scores as part of the application process. The higher the score, the more responsible and trustworthy applicants appear, and having an established credit history before graduating college can give students an advantage.

College is both about learning and making mistakes. Learning about and using credit cards in college is a way to learn how to manage money in a less risky environment, since both credit limits and extra expenses for college students tend to be low. owever, we recommend staying involved in your child’s credit use so you can help them best manage their finances responsibly

Ease of mind. Using a credit card means purchases are protected and that the account holder is protected from theft. While fraudulent purchases on a debit care are usually also protected, when it happens, the user is losing cash, not credit, until the issue isresolved. A credit card an also be helpful in a crisis or emergency if other funds aren’t available.

When credit cards are involved, there is always the risk of overspending. Since items are paid for only after each statement closes, there can be the false sense of unlimited spending potential. Having a credit card should be presented as part of the larger lesson of making and sticking to a budget.

One credit card can mean offers for others, especially department stores. If a student begins opening multiple accounts and charging purchases freely, this can quickly spiral out of control. Many department store cards have very high interest rates which, along with juggling multiple payments a month, can make zeroing out balances an issue.

Getting your child approved for a credit card can be challenging, especially if he or she has no credit history. However, there are several options that make it possible, from getting he or she a secured card to help build credit, or making them an authorized user on one of your accounts. The authorized user approach also allows students to account for their own purchases, in order to build credit history. One place to start is Nerd Wallet, where they have compiled a great list of college student credit cards.

As with all of these kids of decisions, it really comes down to what is best for your individual child and family situation. Whatever you decide, helping your child understand the basics of budgeting and smart ways to use credit will create a foundation of financial literacy which will eventually prepare them for real world, post-college finances.

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